One for the experts

[Storm]

One for the experts - if you need a copy of the case summary / detail email Andy who has my contact details.

The Hurstanger case and its implications for commission disclosure
Wilson & Hurstanger Ltd - 04/04/2007 Court of Appeal

The Hurstanger case, decided in April by the Court of Appeal is important; it sets legal precedent and is now law.

The Court held that where a finance broker owes a fiduciary duty to a borrower he is required to act loyally and not put himself into a position where he has a conflict of interest. Such a conflict does arise in cases where the broker agrees to accept commission from the other party (i.e. the lender). The Court decided that the broker can only receive commission in such circumstances if the borrow consented to this with full knowledge of all the material circumstances. This means that the broker must:

• disclose the amount of the commission to the borrower
• obtain the borrower's consent to receive the commission
• explain that this may prevent the broker from offering unbiased advice

Failure to do so will render the broker liable to refund the commission. The lender would also be liable as an accessory to this.

The Court also held that in cases where the broker does not disclose he is in receipt of commission from the lender, the commission will be "secret", the broker potentially guilty of fraud, and the entire loan liable to be rescinded. The Court however held that the commission in the Hurstanger case was not "secret" as it was disclosed, albeit fairly generically, in the loan documentation.

[Adam Davies]

Hi
So how does this leave a motor company selling a vehicle via a finance company ? The motor company gets a commission from the finance company but the amount is never disclosed to the buyer,in my experience.
Regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp

[Storm]

Its a good point Andy which will become clearer in the next few weeks as the regulatory bods get there teeth into the legalities.

Most brokers and car dealers get a slice of the interest charges for the term of the loan as commission usually £500 + per deal.

Biggest problem seems to be secured loans where the commission is usually £1500 + per case from the lender not disclosed on the document but reflecting a % of the interest charged.

FISA are due to offer guidance on this over the next 10 days but its certainly had some heads spinning over the last couple of days ...........

[Welsh Boy]

Storm

I personally think it could only be for the better if every penny has to be openly declared. In my industry the client has to know exactly how much is being paid to the broker and transparency is the key here. Tony